All Interventionists Now? A Review of Long-Term Economic Policy Trends in OECD

• In Event: The Power of Purse: Economic Conditions and Fiscal Policy

Abstract

This essay advances an alternative account of the long-term changes in economic policy in eighteen OECD countries over the past four decades, which challenges the common narrative that the strongly interventionist post-war era, underpinned by a Keynesian policy paradigm, has been succeeded by a largely non-interventionist era where policy predominantly derives from monetarist theory. A systematic re-examination of trends in numerous economic policy indicators as well as in parties' policy positions finds no such succession of paradigms; instead policies with different ideational foundations currently cohabitate. Policymakers have surely abandoned many heterodox ‘power tools’ of previous eras, while establishing new norms for monetary policy based on monetarist theory. However, they still retain their commitment to traditional Keynesian discretionary fiscal policy and automatic stabilizers. Importantly, they are moreover developing a new approach to economic policy, here labelled the micro-interventionist state—or the ‘Swiss Army Knife State’, as it were. The cross-partisan appeal of the ‘multi-tools’ associated with this growing approach—such as horizontal industrial policy, active social policy, and social tax expenditures—partly stems from their versatility, as policymakers may use them to very different distributional ends. Hence, to fully understand contemporary economic policy, scholars need to shift focus from how much to how policymakers intervene in the economy.

Author

• Axel Cronert, Uppsala Universiry